Illinois is paying a steep price for doing only minor reforms to its troubled pension system. The state's accumulated budget deficit, including billions of dollars in bills to vendors that the state has delayed paying, now amounts to some $5 billion, and rising pension costs are eating up much of the two-thirds increase in income taxes the state enacted earlier this year.
Pension costs in Illinois now amount to a whopping 17.4 percent of the state's general fund thanks to $2 billion in increased pension contributions over the past four years, according to a new report by the Civic Federation. Also adding to the burden is an increase of more than $1 billion in debt payments from pension obligation bonds that the state has floated in recent years to raise money for its pension system. A risky investment, the bonds represent a bet by the state that it could earn more investment income on the money raised through the offerings than it has to pay in interest to bond holders. With the stock market in a funk, however, those POBs, including a giant $10 billion offering in 2003 and an additional $3.5 billion in 2009, are a burden, not a boon.
Illinois has also come under scrutiny from the Securities and Exchange Commission for its disclosure of pension liabilities in municipal bond documents. Sources have said that the SEC is looking at whether the state overstated the savings from 2010 pension reforms. The new pension rules, which include raising the retirement age for state workers to 67, only apply to new hires. "This budget plainly demonstrates the need for further pension reform by the State of Illinois," said Laurence Msall, president of the Civic Federation.
The state has done only modest cost cutting since the financial bubble burst in 2008, trimming spending by $298 million. But that doesn't include the increase in pension costs, which has more than made up for cuts elsewhere.
Illinois has also come under scrutiny from the Securities and Exchange Commission for its disclosure of pension liabilities in municipal bond documents. Sources have said that the SEC is looking at whether the state overstated the savings from 2010 pension reforms. The new pension rules, which include raising the retirement age for state workers to 67, only apply to new hires. "This budget plainly demonstrates the need for further pension reform by the State of Illinois," said Laurence Msall, president of the Civic Federation.
The state has done only modest cost cutting since the financial bubble burst in 2008, trimming spending by $298 million. But that doesn't include the increase in pension costs, which has more than made up for cuts elsewhere.
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